Stamp duty relief and what to budget for

The point in which stamp duty is paid has doubled for home movers from £125,000 to £250,000 and for first time buyers it’s increased from £300,000 to £425,000 on homes up to £625,000.

  • The level at which stamp duty starts has been doubled from £125,000 to £250,000

  • The threshold at which first-time buyers start paying the tax has increased to £425,000 on homes costing up to £625,000

  • Home-movers in the lower price brackets will save up to £2,500 and first time buyers can save up to £11,250

  • These changes remove 8 million homes from stamp duty payments, but greater changes are needed to offset the impact of higher mortgage rates

The level at which stamp duty starts has doubled, saving many home buyers thousands of pounds.

Chancellor Kwasi Kwarteng announced that the tax would not be charged on the first £250,000 of a property purchase for people moving home, up from the current level of £125,000.

To help people get on to the property ladder, no stamp duty will be paid on the first £425,000 of a property worth up to £625,000 bought by first-time buyers.

In the previous scheme, first time buyers were not charged stamp duty on the first £300,000 of a home costing up to £500,000.

Kwarteng said: “Cuts to stamp duty will get the housing market moving and support first-time buyers to put down roots.”

The changes came into force from midnight on Friday 23 September and will be permanent.

The new threshold only applies in England and Northern Ireland, as Scotland and Wales set their own property transaction taxes.

How the stamp duty cuts might affect you

Where homes are currently valued in the UK an estimated 30% of properties will now be except from stamp duty.

This is perfect for the lower end of the housing market and those with budgets up to £250,000.

In areas where house value growth is already really strong, this will help further this, such as Liverpool, Manchester and Nottingham.

These changes are unlikely to help buyers of homes worth £250,000 to £925,000 who pay the higher 5% rate. This band has grown by 10% in the last year and includes 13.6 million homes.

Significantly reducing barriers for first time buyers and support those at the lower end of the market.

These reforms do little to reduce the burden for those at the middle to upper price bands, which account for almost half of all property sales.

More will need to be done to help the housing market, particularly in London and the South East where house prices are still at record highs and the increased mortgage and interest rates will continue to heavily impact home buyers as they slowly increase again in 2023.

Why has stamp duty been cut?

The housing market is a major contributor to the UK economy, not just because of the jobs directly involved in the sector, but also because moving house tends to boost people’s spending, as they purchase new furniture and kitchen appliances.

Today’s mini budget from the Chancellor aims to increase the country’s economic growth at a time when it is slowing down, with the Bank of England warning that the UK may already be in recession.

The housing market is also showing signs of slowing, as consumers become more cautious in the face of rising interest rates and living costs.

The Chancellor hopes that cutting stamp duty will get the housing market moving again.

Will the stamp duty cuts increase housing market activity?

The previous stamp duty holiday, introduced by Kwarteng’s predecessor Rishi Sunak, led to a surge in activity.

But this was partly because the cut was only temporary, giving people an incentive to bring forward purchasing decisions to benefit from the tax break.

It was also more generous, with stamp duty waived on the first £500,000 of a property purchase, while it came as the Covid-19 pandemic triggered a once-in-a-lifetime reassessment of our housing needs.

But this time around the reduction is permanent, meaning people do not have a limited period in which to benefit from it.

It also comes after mortgage rates have more than doubled since the start of the year, rising from 2% to more than 4%, offsetting the savings buyers will make from lower stamp duty bills.

The cuts do not help much for those looking at a house in the £250,000 to £925,000 price band. This band has grown by 10% in the last year with the increasing value of homes and includes 13.6 million properties, mostly in London and the South East, this is where people will also feel the biggest impact of mortgage rate rises.

Even so, the move has been welcomed by estate agents.

Jeremy Leaf, a former RICS residential chairman, said: “The Chancellor clearly recognises the dangers in terms of reduced revenue from stamp duty, given the recent reduction in housing market activity, and has taken steps to boost the market.

“The stamp duty cut, particularly for first-time buyers, should encourage those at the first rung of the housing ladder to take the plunge, which will be good not just for the market but for job and social mobility across the board, as well as the wider economy.”

What are the new stamp duty rates?

The new stamp duty rates for those buying a property to live in are:

Property price Stamp duty rate
Up to £250,000 0%
£250,001 to £925,000 5%
£925,001 to £1.5 million 10%
£1.5 million and above 12%

You pay in slabs, so 2% on the home value up to £250,000 and 5% on the proportion between £250,001 and £925,000, and so on. The highest bracket remains at 12% for any value over £1.5 million.

As a result, while someone who previously bought a home costing £250,000 would have paid £2,500 in stamp duty, they will now not pay anything, while someone purchasing a £500,000 home will see their bill drop from £15,000 to £12,500.

The previous stamp duty bands were:

Property price Stamp duty percentage to pay
£0 – £125,000 0%
£125,000 – £250,000 2%
£250,000 – £925,000 5%
£925,000 – £1.5m 10%
£1.5m+ 12%

What other housing announcements were there?

The Chancellor also announced plans to boost the supply of housing through releasing more land for new build developments.

This will be done through increasing the disposal of surplus government land for housing developments.

Kwarteng also said Investment Zones, which will have liberalised planning rules and targeted tax cuts to encourage the building of homes, will be set up in 38 local authorities.

In the past, the shortage of homes for sale has created a mismatch between supply and demand, pushing house prices higher.